What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-06 compared with 2025-10-28 · 141 added, 168 removed, 124 unchanged (71% of the section changed)

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We believe we have built a leading platform for dermatologic product development and commercialization.

Our strategy is to focus on validated biological targets, and to use our drug development platform and deep dermatology expertise to develop and commercialize differentiated products that have the potential to address the major shortcomings of existing therapies in our targeted indications.

We believe this strategy uniquely positions us to rapidly advance our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success and financial resources.

Our strategy is to focus on validated biological targets and to use our drug development platform and deep dermatology expertise to develop and commercialize differentiated products that have the potential to address major shortcomings of existing therapies in our targeted indications.

We launched our lead product, ZORYVE ® (roflumilast) cream 0.3% (ZORYVE cream 0.3%), in August 2022 after obtaining our initial U.S.

Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

groin or axillae), in individuals 12 years of age or older.

Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g., groin or axillae), in individuals 12 years of age or older.

ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor.

ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use.

ZORYVE cream 0.3% is approved for once-daily topical treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use.

In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.

In September 2025, we submitted a supplemental New Drug Application (sNDA) to FDA to expand the indication of ZORYVE cream 0.3% for the treatment of plaque psoriasis in children down to the age of 2.

In June 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.

In December 2023, we received FDA approval for ZORYVE ® (roflumilast) topical foam 0.3% (ZORYVE foam) for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.

ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, is the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.

ZORYVE foam became commercially available in the United States in January 2024, and was approved by Health Canada in October 2024 and became commercially available in Canada in December 2024.

We also received FDA approval for ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents ages 12 and older in May 2025, followed by commercial launch in June 2025.

In addition to the approval of ZORYVE cream 0.3% for plaque psoriasis and ZORYVE foam for seborrheic dermatitis and plaque psoriasis of the scalp and body, we also received FDA approval for and commercially launched ZORYVE (roflumilast) cream 0.15% (ZORYVE cream 0.15%) in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labelling.

In November 2025, our supplemental New Drug Application (sNDA) was accepted for filing by the FDA to potentially expand the indication of ZORYVE cream 0.3% for the treatment of plaque psoriasis in children down to the age of 2, with a Prescription Drug User Fee Act (PDUFA) target action date assigned for June 29, 2026.

In June 2023, we achieved our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years of age or older.

In February 2026, Health Canada accepted our Supplement to a New Drug Submission (SNDS) for ZORYVE cream 0.3% for individuals down to 2 years of age.

In December 2023, we received FDA approval for ZORYVE foam 0.3% (ZORYVE foam) for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.

ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, was the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.

ZORYVE foam became commercially available in the United States in January 2024 and in Canada in November 2024.

We also received FDA approval for ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents aged 12 and older in May 2025, followed by commercial launch in the United States in June 2025.

ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents ages 12 and older was also approved by Health Canada in October 2025, followed by commercial launch in November 2025.

We have completed enrollment in a Maximum Usage Systemic Exposure (MUSE) trial for ZORYVE foam in children with plaque psoriasis of the scalp and body 2 to 11 years old.

We also received FDA approval for, and commercially launched, ZORYVE cream 0.15% in July 2024 for the topical treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years and older, with no

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limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labeling.

ZORYVE cream 0.15% was also approved by Health Canada in March 2025 and commercially launched in April 2025.

We also received FDA approval for ZORYVE cream 0.05% for treatment of mild to moderate atopic dermatitis in children 2 to 5 years of age and plan to commercially launch in October 2025.

ZORYVE cream 0.15% and 0.05% are once-daily,

steroid-free creams that provide rapid disease clearance and significant reduction in itch and have been specifically developed to be treatment options for long-term disease control.

In June 2025, we initiated INTEGUMENT-INFANT, a Phase 2 study to evaluate the safety and efficacy of investigational ZORYVE cream 0.05% in infants as young as 3 months to less than 2 years with atopic dermatitis, which potentially could serve as the basis for a further expansion of the indication for ZORYVE cream 0.05% to this group of patients.

In July 2024, we entered into a co-promotion agreement with Kowa Pharmaceuticals, Inc.

We also received FDA approval for, and commercially launched, ZORYVE cream 0.05% for the topical treatment of mild to moderate atopic dermatitis in children 2 to 5 years of age in October 2025.

In October 2025, Health Canada accepted our SNDS for ZORYVE cream 0.05% for the topical treatment of mild to moderate atopic dermatitis in children 2 to 5 years old.

In February 2026, we announced positive topline data for INTEGUMENT-INFANT, a Phase 2 study evaluating the safety and efficacy of investigational ZORYVE cream 0.05% in infants as young as 3 months to less than 2 years of age with atopic dermatitis.

We submitted an sNDA to the FDA in April 2026 based on the results of this trial to potentially expand the indication for ZORYVE cream 0.05% for the treatment of infants with atopic dermatitis down to the age of 3 months.

ZORYVE cream 0.15% and ZORYVE cream 0.05% are once-daily, steroid-free creams that provide rapid disease clearance and significant reduction in itch and have been specifically developed to be treatment options for long-term disease control.

In July 2024, we entered into a promotion agreement with Kowa Pharmaceuticals America, Inc.

(Kowa) to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029.

Under the terms of the agreement, Kowa will receive a commission from net sales attributed to Kowa.

Under the terms of the agreement, Kowa received a commission from net sales attributed to Kowa.

Promotion of ZORYVE in primary care and pediatrics under the Kowa agreement began in late September 2024.

In addition to ZORYVE, we had developed ARQ-255, a deep penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 (JAK 1) inhibitor, for the treatment of alopecia areata.

Following the completion of a Phase 1b study in the middle of 2025, we elected to halt further development of the program.

In September 2022, we acquired Ducentis BioTherapeutics LTD (Ducentis) and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R).

Currently in the preclinical stage, we plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a potentially highly complementary biologic treatment option to ZORYVE cream 0.15% in that indication, if approved.

Effective January 23, 2026, we mutually agreed to terminate the promotion agreement.

Following this termination, Kowa ceased all sales and promotions of ZORYVE, and we will not be required to make any further payments to Kowa.

In August 2023, we entered into a strategic collaboration and licensing agreement (the Huadong Agreement) for topical roflumilast in Greater China and Southeast Asia with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

(Huadong), a wholly owned subsidiary of Huadong Medicine Co., Ltd.

In February 2024, we entered into a strategic collaboration and licensing agreement (the Sato Agreement) for topical roflumilast in Japan with Sato Pharmaceutical Co., Ltd.

In September 2022, we acquired Ducentis BioTherapeutics LTD.

(Ducentis) and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 receptor (CD200R).

We are developing ARQ-234 for moderate to severe atopic dermatitis, where we believe it could be a highly complementary biologic treatment option to ZORYVE cream 0.15% in that indication, if approved.

ARQ-234 could potentially be used to treat other inflammatory conditions as well.

The Company submitted an Investigational New Drug (IND) application to the FDA in July 2025, and anticipates commencing a Phase 1 study of ARQ-234 in the first quarter of 2026.

We have incurred annual net losses in each year since inception, including net losses of $33.5 million and $129.3 million for the nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, we had an accumulated deficit of $1,155.5 million and cash, cash equivalents, restricted cash, and marketable securities of $191.4 million.

As of September 30, 2025, we had $100.0 million outstanding under the Loan Agreement.

We paid down $100.0 million of principal related to the Loan Agreement using available cash in October 2024, with the right to re-draw that principal for a defined period.

While we generated net income for the quarter ended September 30, 2025, the extent of any net income or losses for future periods is uncertain and we may continue to incur net losses in future periods.

We expect to continue to incur significant expenses as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions and commercialization.

We expect to incur commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spend on ARQ-234 and ZORYVE label expansions.

While we do not anticipate the need to obtain funds through financings or other sources to support our current planned operations, if our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements.

In March 2026, we announced that the first participant had been enrolled in a Phase 1a/1b clinical study evaluating the safety and tolerability of ARQ-234.

In July 2018, we executed a licensing agreement with AstraZeneca AB (AstraZeneca) for exclusive worldwide rights to roflumilast as a topical product for use in humans solely for dermatological indications.

Moreover, we have our own intellectual property portfolio around topical uses of roflumilast, with issued and pending formulation, pharmacokinetic, and method-of-use patents in the United States and other jurisdictions from several distinct patent families, which provides us with exclusivity in the United States for our product cream formulation through 2037 and foam formulation through 2042.

We have incurred annual net losses in each year since inception, including net losses of $11.3 million and $25.1 million for the three months ended March 31, 2026 and 2025, respectively.

As of March 31, 2026, we had an accumulated deficit of $1,149.4 million and cash, cash equivalents, restricted cash, and marketable securities of $224.3 million.

As of March 31, 2026, we had $100.0 million outstanding under a loan and security agreement, as amended, with SLR Investment Corp.

(SLR) and the lenders party thereto.

While we generated net income for the quarters ended September 30, 2025 and December 31, 2025, the extent of any net income or losses for future periods is uncertain, and we may continue to incur net losses in future periods.

We expect to incur commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spending on ARQ-234 and ZORYVE label expansions.

While we do not anticipate the need to obtain funds through financings or other sources to support our current planned operations, if our available cash and marketable securities balances, amounts available under financing arrangements, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as potential future collaboration agreements.

Adequate funding may not be available to us on acceptable terms, or at all.

Any failure to obtain sufficient funds on acceptable terms if or when needed could have a material adverse effect on our business, results of operations, and financial condition.

We rely on third parties to conduct our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates.

We have no internal manufacturing capabilities and we rely on third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.

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We do not own or operate, and currently have no plans to establish any manufacturing facilities.

We rely on third parties to conduct our nonclinical studies and clinical trials, as well as for the manufacturing and supply of our product candidates and for the commercial supply of our products.

Many of these suppliers that we rely on are single-source suppliers.

Components of Our Results of Operations

Product Revenue, Net

In August 2022, in conjunction with the launch of our first FDA-approved product, ZORYVE cream 0.3%, we began to recognize revenue from product sales, net of rebates, chargebacks, discounts and other adjustments.

We also began recognizing revenue net of deductions for ZORYVE cream 0.3% in Canada in June 2023, ZORYVE foam for seborrheic dermatitis in the United States in January 2024, ZORYVE cream 0.15% for atopic dermatitis in July 2024, ZORYVE foam for seborrheic dermatitis in Canada in December 2024, ZORYVE cream 0.15% in Canada in April 2025, and ZORYVE foam for scalp and body psoriasis in the United States in June 2025.

Additionally, if our development efforts for our other product candidates and ZORYVE label expansions are successful and result in regulatory approval, we may generate additional revenue in the future from sales of such other products and label expansions.

In August 2022, in conjunction with the launch of our first FDA-approved product, we began to recognize revenue from product sales, net of deductions.

Below are the time periods that we began to recognize product revenue, net of deductions, related to the launches of each of our products and indications:

Product/Indication Concentration Region Age 2022 2023 2024 2025

ZORYVE cream for Plaque Psoriasis

United States > 12 yrs

Canada > 12 yrs

United States 6-11 yrs October

ZORYVE foam for Seborrheic Dermatitis

United States > 9 yrs

Canada > 9 yrs

ZORYVE cream for Atopic Dermatitis

United States > 6 yrs

Canada > 6 yrs

United States 2-5 yrs October

ZORYVE foam for Scalp & Body Psoriasis

United States > 12 yrs

Canada > 12 yrs

Other Revenue

Other revenue relates to our license agreements, primarily the Sato Agreement and the Huadong Agreement .

See Note 6 to the condensed consolidated financial statements for additional information.

Other revenue recognized to date is derived primarily from upfront license fees and milestone payments received pursuant to the Sato Agreement and Huadong Agreement.

We expect that any other revenue we generate pursuant to these agreements will fluctuate from period to period as a result of the timing of potential milestone achievements and any potential regulatory approvals within the respective Sato Territory and Huadong Territory.

Operating Expenses

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Prior to the date on which the initial regulatory approval was received for each product, costs of inventory production were recorded as research and development expense.

As of March 31, 2026 and December 31, 2025, the value of this expensed inventory on hand was approximately $1.7 million and $2.6 million, respectively.

Subsequent to initial regulatory approval, costs of production are capitalized into inventory, and as that inventory is sold and revenue is recognized, the cost of the inventory is recognized in cost of sales.

During the second half of 2025, the Company expects to have sold its remaining finished goods inventory produced prior to regulatory approval for which the cost was previously recognized as research & development expense.

As of September 30, 2025 and December 31, 2024, the value of this inventory, mostly at the raw materials stage, was approximately $0.2 million and $5.5 million, respectively.

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Research and Development Expenses

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Research and development costs are expensed as incurred.

These costs include direct program expenses, which are payments made to third parties that specifically relate to our research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, nonclinical testing and consultants.

These costs include direct program expenses, which are third-party expenses incurred related to our research and development programs, including for clinical research organizations, clinical investigators, the manufacturing of clinical material, nonclinical testing and consultants.

In addition, employee costs, including salaries, payroll taxes, benefits, stock-based compensation, and travel for employees contributing to research and development activities are classified as research and development costs.

We allocate direct external costs on a program specific basis (topical roflumilast program and CD200R program).

Our internal costs are primarily related to personnel or professional services and apply across programs, and thus are not allocable on a program specific basis.

Direct external costs relate to a specific program.

Our internal costs are primarily related to personnel or professional services, apply across programs, and, thus, are not allocable to a specific program.

We expect to continue to incur research and development expenses in the future as we develop our product candidates.

In particular, we expect to incur research and development expenses for the development of ARQ-234 for atopic dermatitis and for ZORYVE label expansions and life cycle management.

We have entered, and may continue to enter, into license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders.

We evaluate if the license agreement is an acquisition of an asset or a business.

To date, none of our license agreements have been considered to be an acquisition of a business.

For asset acquisitions, the upfront payments, as well as any future milestone payments made before product approval, are immediately recognized as research and development expense when due, provided there is no alternative future use of the rights in other research and development projects.

In particular, we expect to incur research and development expenses for the development of ARQ-234 for atopic dermatitis and for ZORYVE label expansions and lifecycle management.

We have entered, and may continue to enter, into in-license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders.

We evaluate whether an in-license agreement is an acquisition of an asset or a business.

To date, none of our in-license agreements have been considered to be an acquisition of a business.

For asset acquisitions, the upfront payments, as well as any milestone payments made before regulatory approval, are immediately recognized as research and development expense, provided there is no alternative future use of the rights in other research and development projects.

The successful development of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, and ARQ-234 or any other product candidates.

At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, ARQ-234, or any other product candidates.

This is due to the numerous risks and uncertainties associated with the development of product candidates.

See “Risk Factors” for a discussion of the risks and uncertainties associated with the development of our product candidates.

See “Risk Factors” for a discussion of the risks and

uncertainties associated with the development of our product candidates.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE.

Other selling, general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, insurance and professional services fees for auditing, tax, and general legal services.

The commission paid to Kowa under our co-promotion agreement is recorded as a selling expense.

We expect our selling, general and administrative expenses to continue to increase in the future as we continue to commercialize ZORYVE and potentially other product candidates and support our operations, including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.

Other Income, Net

Other income, net primarily consists of interest income earned on our cash, cash equivalents, and marketable securities, as well as changes in the fair value of the derivative related to our debt.

See Note 8 to the condensed consolidated financial statements for additional information.

Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, for sales, commercial operations, human resources, information technology, legal and finance employees.

Other selling, general and administrative expenses include costs related to sales and marketing of ZORYVE;

commissions earned by Kowa under our promotion agreement, which was terminated effective January 23, 2026;

professional services costs for patent protection, accounting, auditing, tax, and general legal services;

other outside services and consulting costs;

information technology;

and other overhead.

Interest Income

Interest income consists of interest earned on our cash, cash equivalents, and marketable securities.

Interest Expense

Interest expense is related to interest incurred on our long-term debt.

Interest expense is related to interest incurred on our debt.

Provision for Income Taxes

Provision for income taxes is primarily related to foreign income tax expense and foreign withholding taxes incurred in relation to a license agreement.

Provision for income taxes is primarily related to foreign income tax expense, foreign withholding taxes incurred in relation to payments received pursuant to our in-license agreements and state income tax expense related to jurisdictions with minimum taxes or taxes based on revenue.

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Results of Operations

Comparison of the Three Months Ended September 30, 2025 and 2024

Comparison of the Three Months Ended March 31, 2026 and 2025

Product revenue, net

We began recording U.S.

product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, and Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE cream 0.3% in June 2023.

In the first quarter of 2024, we began recording U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in January 2024.

In the third quarter of 2024, we began recording U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024.

In the fourth quarter of 2024, we began recording Canada product revenue following the Health Canada approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in December 2024.

In the second quarter of 2025, we began recording Canada product revenue following the Health Canada approval and subsequent launch of ZORYVE cream 0.15% in April 2025, as well as U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for scalp and body psoriasis in June 2025.

Three Months Ended September 30,

Three Months Ended March 31, Change

2026 2025 $ %

5 unchanged sentences

ZORYVE cream 0.15% 21,741 10,219 11,522 113 %

18,947 2,452 16,495 673 %

Total product revenue, net

$ 99,219 $ 44,755 $ 54,464 122 %

______________

*Not applicable

Product revenue, net, for ZORYVE cream 0.3% increased by $8.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand in the United States and Canada.

Product revenue, net, for ZORYVE foam increased by $29.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand related to seborrheic dermatitis in the United States, the commercial launch of ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in the United States in June 2025, as well as the commercial launch of ZORYVE foam for seborrheic dermatitis in Canada in December 2024.

Product revenue, net, for ZORYVE cream 0.15% increased by $16.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand and, to a lesser extent, net price improvement in the United States.

Cost of Sales

Cost of sales increased by $3.2 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

The increase was due to the increase in royalty expense and cost of products sold, consistent with the growth in ZORYVE cream and foam product revenue.

Research and Development Expenses

Three Months Ended September 30, Change

2025 2024 $ %

(in thousands)

Direct external costs:

Topical roflumilast program $ 3,340 $ 1,320 $ 2,020 153 %

Topical JAK inhibitor program 61 1,089 (1,028) (94) %

Other early stage programs 1,379 2,910 (1,531) (53) %

Indirect costs:

Compensation and personnel-related 10,553 9,834 719 7 %

Other 4,271 4,348 (77) (2) %

Total research and development expense $ 19,604 $ 19,501 $ 103 1 %

Research and development expenses increased slightly by $0.1 million, or 1%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

Direct external costs decreased due to lower ARQ-234 preclinical costs and the completion of a Phase 1b study in our topical JAK inhibitor program for the treatment of alopecia areata, which we elected to halt.

These decreases were partially offset by an increase in expenses related to a Phase 2 study of ZORYVE cream 0.05% for the treatment of atopic dermatitis in infants.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $3.6 million, or 6%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

The increase was primarily due to continued commercialization efforts and growing revenue for ZORYVE and consisted of $2.2 million in compensation and personnel-related expenses and $2.0 million in sales and marketing expenses, partially offset by decreases in costs related to professional services.

Other Income, Net

Other income, net decreased by $2.1 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to less interest income resulting from lower cash, cash equivalents, and marketable securities balances, coupled with the impact of lower investment yields.

Interest Expense

Interest expense decreased by $3.6 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, due to a lower outstanding principal balance on our long-term debt driven by our $100.0 million principal paydown in October 2024, coupled with the impact of lower interest rates.

See Note 8 to the condensed consolidated financial statements for additional information.

Comparison of the Nine Months Ended September 30, 2025 and 2024

Product Revenue, Net

We began recording U.S.

product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE cream 0.3% in June 2023, and additional U.S.

revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in January 2024.

In the third quarter of 2024, we began recording U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024.

In the second quarter of 2025, we began recording Canada product revenue following the Health Canada approval and subsequent launch of ZORYVE cream 0.15% in April 2025, as well as U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for scalp and body psoriasis in June 2025.

Nine Months Ended September 30, Change

2025 2024 $ %

(in thousands)

Product revenue, net

ZORYVE cream 0.05% 1,360 — 1,360 *

$ 81,553 $ 54,325 $ 27,228 50 %

119,233 40,405 78,828 195 %

ZORYVE cream 0.15%

43,783 2,452 41,331 1686 %

Total product revenue, net

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*Not applicable

Product revenue, net, for ZORYVE cream 0.3% increased by $27.2 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by higher end customer demand in the United States and Canada.

Product revenue, net, for ZORYVE foam increased by $78.8 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by higher end customer demand for seborrheic dermatitis in the United States, the commercial launch of ZORYVE foam for plaque psoriasis of the scalp and body in the United States in June 2025, as well as the commercial launch of ZORYVE foam for seborrheic dermatitis in Canada in December 2024.

Product revenue, net, for ZORYVE cream 0.15% increased by $41.3 million for the nine months ended September 30, 2025, primarily driven by its commercial launch in the United States in July 2024.

Other Revenue

Other revenue of $2.0 million for the nine months ended September 30, 2025 relates to license revenues received in connection with the Huadong Agreement.

Other revenue for the nine months ended September 30, 2024 includes $25.0 million received as an upfront payment in connection with the Sato Agreement and a $3.0 million milestone payment received in connection with the Huadong Agreement.

See Note 6 to the condensed consolidated financial statements for additional information.

The increase in product revenue, net, for ZORYVE cream 0.3% was primarily driven by greater patient demand for ZORYVE cream in the United States and Canada.

The increase in product revenue, net, for ZORYVE foam was primarily driven by greater patient demand for ZORYVE foam for the treatment of seborrheic dermatitis in the United States and Canada,and the commercial launch of ZORYVE foam for plaque psoriasis of the scalp and body in the United States in June 2025 and Canada in November 2025.

The increase in product revenue, net, for ZORYVE cream 0.15% was primarily driven by greater patient demand in the United States, as well as its commercial launch in Canada in April 2025.

The increase in product revenue, net, for ZORYVE cream 0.05% was due to its commercial launch in the United States in October 2025.

Cost of Sales

Cost of sales increased by $12.8 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, and was due to a $2.5 million increase in amortization expense recorded in connection with the AstraZeneca milestones achieved in the first quarter of 2025, with the remainder due to the increase in royalty expense and cost of products sold consistent with the growth in ZORYVE cream and foam product revenue.

Cost of sales increased by $1.0 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, due to higher sales volumes and the associated increase in expenses recognized for product sold and royalties , partially offset by $2.4 million of catch-up amortization expense recognized in the comparative period for an AstraZeneca milestone achieved.

Research and Development Expenses

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2026 2025 $ %

1 unchanged sentence

Direct external costs:

ARQ-234 program $ 11,003 $ 1,189 $ 9,814 825 %

Topical roflumilast program 3,307 1,446 1,861 129 %

Topical JAK inhibitor program 780 2,351 (1,571) (67) %

Other early stage programs 5,069 8,878 (3,809) (43) %

Other programs

95 1,182 (1,087) (92) %

Indirect costs:

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Total research and development expense $ 30,627 $ 17,543 $ 13,084 75 %

Research and development expenses decreased by $5.3 million, or 9%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

The decrease was primarily

due to lower ARQ-234 preclinical costs and the completion of a Phase 1b study in our topical JAK inhibitor program for the treatment of alopecia areata, which we elected to halt.

We expect research and development expenses in future periods to increase primarily due to the development and clinical study associated with ARQ-234 and ZORYVE life cycle management.

For research and development expense, the increase in the ARQ-234 direct program costs was primarily due to the $10.0 million milestone that became payable to certain former Ducentis stockholders upon the dosing of the first patient in the ARQ-234 Phase 1a/1b trial.

The increase in the topical roflumilast direct program costs was primarily due to the completion of enrollment and related higher patient costs in our ZORYVE foam MUSE trial for

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the treatment of scalp and body psoriasis in children aged 2 to 11 years.

The increase in indirect costs was primarily driven by increased headcount and related compensation costs.

We expect research and development expenses to continue to increase in 2026, primarily due to our clinical development program for ARQ-234, as well as the development costs associated with ZORYVE label expansions and lifecycle management efforts.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses increased by $23.8 million, or 14%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

The increase was primarily due to continued commercialization efforts and growing revenue for ZORYVE, and consisted of $13.4 million higher sales and marketing expenses and $12.1 million higher compensation and personnel-related expenses.

These increases were partially offset by a decrease in professional services costs.

Other Income, Net

Other income, net decreased by $6.6 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to less interest income resulting from lower cash, cash equivalents, and marketable securities balances, coupled with the impact of lower investment yields.

Selling, general, and administrative expenses increased by $10.1 million, or 16%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.

The increase was primarily due to an increase in sales and marketing expenses of $5.9 million and an increase in compensation and employee benefit related expenses of $4.4 million.

These increases were primarily due to our continued commercialization efforts for ZORYVE.

We expect our selling, general and administrative expenses to continue to increase in future periods as we continue to commercialize ZORYVE and potentially other product candidates, as well as support our operations.

Interest Expense

Interest expense decreased by $12.5 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, due to a lower outstanding principal balance on our long-term debt driven by our $100.0 million principal paydown in October 2024, coupled with the impact of lower interest rates.

See Note 8 to the condensed consolidated financial statements for additional information.

Interest expense increased by $1.4 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to fees incurred to maintain the availability of the tranche C-1 and tranche C-2 term loans through March 31, 2026 and June 30, 2026, respectively.

Liquidity, Capital Resources, and Requirements

Sources of Liquidity

Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM program, and revenue from the sale of ZORYVE cream 0.3%, ZORYVE cream 0.15%, and ZORYVE foam.

We have incurred annual operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations.

As of September 30, 2025, we had cash, cash equivalents, restricted cash, and marketable securities of $191.4 million, and an accumulated deficit of $1,155.5 million.

As of September 30, 2025, we had $100.0 million outstanding under the Loan Agreement.

We paid down $100.0 million of principal related to the Loan Agreement using available cash on October 8, 2024, with the right to re-draw that principal for a defined period.

See Note 8 to the condensed consolidated financial statements for additional information.

As of March 31, 2026, we had cash, cash equivalents, restricted cash, and marketable securities of $224.3 million, and an accumulated deficit of $1,149.4 million.

As of March 31, 2026, we had $100.0 million outstanding under the Loan Agreement.

We believe that our existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of our financial statements.

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In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all.

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We have based our projected operating requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect.

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• costs associated with any adverse market conditions or other macroeconomic factors.

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On December 22, 2021, we entered into a loan and security agreement (the Prior Loan Agreement) with SLR Investment Corp (SLR) and the lenders party thereto.

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With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded in August 2022.

As of September 30, 2025 and December 31, 2024, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million.

As of March 31, 2026 and December 31, 2025, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million.

In October 2024, we made a 2024 Partial Prepayment of $100.0 million, which reduced the aggregate principal amount outstanding under the Loan Agreement to $100.0 million.

In connection with the 2024 Partial Prepayment, we are obligated to pay a prepayment penalty of $1.0 million by June 30, 2026 and a final fee of $6.95 million, representing the final fee applicable to the amount of the 2024 Partial Prepayment, on January 1, 2027.

As a result of such 2024 Partial Prepayment, subject to us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we will be able to draw down the tranche C-1 and tranche C-2 term loans.

The tranche C-1 term loan availability will expire on March 31, 2026 and the tranche C-2 term loan availability will expire on June 30, 2026.

In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029 (such date, the Maturity Date), (ii) the applicable per annum interest rate is equal to 5.95% plus the greater of (a) 2.50% per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) we are no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) we may prepay principal amounts outstanding under the Term Loans in minimum increments of $25.0 million, subject to a prepayment premium of (a) 3.0% for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0% for any prepayment made prior after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0% for any prepayment made prior after the second anniversary of the second amendment and prior to the Maturity Date.

As a result of such 2024 Partial Prepayment, subject to us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we obtained the ability to draw down the tranche C-1 and tranche C-2 term loans.

The tranche C-1 term loan availability expired on March 31, 2026 and the tranche C-2 term loan availability will expire on June 30, 2026.

In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029 (such date, the Maturity Date), (ii) the applicable per annum interest rate is equal to 5.95% plus the greater of (a) 2.50% per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) we are no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) we may prepay principal amounts outstanding under the Term Loans in minimum increments of $25.0 million, subject to a prepayment premium of (a) 3.0% for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0% for any prepayment made after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0% for any prepayment made after the second anniversary of the second amendment and prior to the Maturity Date.

Principal amounts outstanding under the Term Loans will generally accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan.

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As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month SOFR.

On September 30, 2025, the rate was 10.20%.

On March 31, 2026, the rate was 9.61%.

The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.

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If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, we are required to make certain mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.

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The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock.

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Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.

We were in compliance with all covenants under the Loan Agreement as of September 30, 2025.

We were in compliance with all covenants under the Loan Agreement as of March 31, 2026.

The following table sets forth our cash flows for the periods indicated:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Cash used in operating activities $ (31,810) $ (111,410)

Cash provided by (used in) operating activities

$ 2,239 $ (30,380)

Cash provided by (used in) investing activities

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Effect of exchange rate changes on cash (119) 4

Net (decrease) increase in cash, cash equivalents, and restricted cash

Net decrease in cash, cash equivalents, and restricted cash

$ (8,145) $ (18,231)

Net Cash Used in Operating Activities

During the nine months ended September 30, 2025, net cash used in operating activities was $31.8 million, which consisted of a net loss of $33.5 million and a change in net operating assets and liabilities of $32.5 million, partially offset by net non-cash charges of $34.2 million.

The net non-cash charges were primarily related to stock-based compensation expense of $30.3 million and amortization of intangible assets of $4.1 million.

During the nine months ended September 30, 2024, net cash used in operating activities was $111.4 million, which consisted of a net loss of $129.3 million and a change in net operating assets and liabilities of $13.5 million, partially offset by net non-cash charges of $31.4 million.

The net non-cash charges were primarily related to stock-based compensation expense of $32.3 million.

Net Cash Provided by (Used in) Operating Activities

During the three months ended March 31, 2026, net cash provided by operating activities consisted of a net loss of $11.3 million, adjusted for certain non-cash charges of $11.7 million and net changes in operating assets and liabilities of $1.8 million.

Non-cash items primarily related to stock-based compensation expense of $10.7 million.

The overall increase in cash from changes in our net operating assets and liabilities was the result of increasing collections of our accounts receivable and an increase in accrued liabilities, in part due to the $10.0 million Ducentis

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milestone liability recorded and payable as of March 31, 2026, partially offset by a reduction in accrued compensation as a result of paying our prior year annual bonus for employees in the first quarter of the current year.

Other fluctuations in our operating assets and liabilities were due to the timing of payments made to third parties.

During the three months ended March 31, 2025, net cash used by operating activities consisted of a net loss of $25.1 million, adjusted for certain non-cash charges of $12.4 million and offset by a decrease in net working capital of $17.7 million.

Non-cash items primarily included stock-based compensation expense of $9.8 million and amortization of intangible assets of $3.0 million.

Net Cash Provided by (Used in) Investing Activities

During the nine months ended September 30, 2025, net cash provided by investing activities was $3.9 million, which was comprised primarily of proceeds from the maturities of marketable securities of $172.4 million, offset by purchases of marketable securities of $157.8 million and a milestone payment made to AstraZeneca of $10.0 million.

During the nine months ended September 30, 2024, net cash used in investing activities was $6.1 million, which was comprised primarily of purchases of marketable securities of $237.4 million, offset by proceeds from the maturities of marketable securities of $231.5 million.

During the three months ended March 31, 2026, net cash used by investing activities was comprised primarily of purchases of marketable securities of $62.2 million, partially offset by maturities of marketable securities of $50.8 million.

During the three months ended March 31, 2025, net cash provided by investing activities was comprised primarily of proceeds from maturities of marketable securities of $68.5 million, partially offset by purchases of marketable securities of $56.1 million.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2025, net cash provided by financing activities was $3.3 million, which was comprised primarily of proceeds from the issuance of our common stock upon exercise of employee stock options and purchase of shares pursuant to our employee stock purchase plan.

During the nine months ended September 30, 2024, net cash provided by financing activities was $163.6 million, which was comprised primarily of $161.7 million of net proceeds from our March 2024 public stock offering.

During the three months ended March 31, 2026 and March 31, 2025, net cash provided by financing activities was comprised of proceeds from the issuance of our common stock upon exercise of stock options.

Contractual Obligations and Contingent Liabilities

Other than the changes described in Notes 6 and Note 7 to the condensed consolidated financial statements in Item 1, related to our lease amendment and Ducentis, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.

Other than the change related to Ducentis described in Note 6 to the condensed consolidated financial statements in Item 1, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis